The recent announcement by Brisbane based Progen that they would discontinue their PI-88 drug development comes as a wake up call for the entire Biotech industry.

The Board of Progen announced that the reasons underlying this about face in strategy were based on issues around patient recruitment, regulatory issues and clinical site initiation amongst others. We were also surprised by the statement that “the recent launch of a competitive phase 3 trial, assessing Bayer/Onyx Nexavar® in the same indication” had an impact on the decision. This piece of information, may well have had some impact on Progen’s inability to secure a “global partner willing to meaningfully develop and commercialise PI-88″.

As highlighted by both The Australian and The Age, this comes as a shock considering the company rose close to $100m over the last 18 months in order to drive the clinical development of the PI-88 opportunity.

One of the questions that arises is how should have Progen responded to the knowledge that a competitive technology was coming to market?

This is an important strategic issue for many biotech’s. What is out there and what impact will it have on the market potential of their technology? Do they know what customers (patients and prescribers) want and how this will work with existing solutions? And how do they respond to this knowledge?

The industry has traditionally focused its attention on the wonder and appeal of the science that ultimately drives this exciting industry. However, the business model that supports this philosophy has required investors to believe that proof of technology will equate to a big licensing deal, a strong royalty stream and the massive buy out by a Big Pharma.

Many firms and investors our now discovering that this ’silver bullet approach’ is not necessarily the reality of the market.

Recent history is littered with examples of where market reaction to a new entrant has not necessarily gone according to the script. Pfizers US$2.8b write off of the inhaled insulin therapy Exubera is one case. The recent Biota/GSK case hinged on an interpretation of GSK’s ‘best endeavours’ to market the Flu drug Relenza as being one of the reasons behind lower than expected sales.

Additionally, CSL have only recently had to deal with Merck’s announcement that they were unlikely to hit their forecast for Cervical cancer drug Gardasil. “What we saw today would suggest that 2009 is going to be softer than our numbers,” said Dan Hurren, a health-care analyst at USAG, referring to his estimates.” The implication of this was immediately felt in CSL’s share price.

So what needs to change in the biotechnology business model to mitigate the risk of poor market acceptance?

Well, we believe there is a growing need for all Biotechnology firms to actively engage throughout their development in gathering clear, cogent evidence of market need and demand and ensuring that this evidence underpins their technology development, licensing and capital raising strategies. A thorough understanding of the competitive landscape is also paramount.

So are Biotechnology firms responding to this?

Well some are. These firms are focusing on clearly articulating the opportunity and using this granular understanding as a guide to the development of their target product profile and as input into their licensing strategy.

Our hunch is that these same firms are the ones who will be successfully commercialising and monetising ground breaking technologies in an increasingly crowded market.

What does seem clear is that the DNA of their success is not only truly world leading science, but science that solves a compelling customer need as well.

Michael R Johnson